rumatt

Keep wasting money on new cars, it's a free world!

Article: Your new car, your loss

rx8cited

Great article! I skimmed it and
I'm on the left side of the table.

Nice distraction, but back to the subject now:

BUYING VS LEASING

rx8cited

heh8me

Some of the reasons why I lease:

1) I like changing cars every three years or so. I leased two Audis before getting my RX8.

2) The sales price (capital cost reduction) my lease is based on is $3000 below invoice. That's a negotiated price of $500 below invoice plus $2500 in incentives on a 36 month lease (I was able to get a better deal by not going through Mazda's financing). I also believe the residual is quite high, and is probably higher than what the market value will be in three years. This belief is based on the fact that this is a first year car, it has known problems that should be worked out in the 2005 models, and that the deep discounts that are being offered will supress it's resale value. So, I believe that upon expiration of the lease, the market value of the car will be significantly less than the residual. If I want to buy the car at the end of the 36 months, I can negotiate the difference with the bank that holds my lease.

3) General rule of thumb is to buy what appreciates and rent what depreciates. This applies to significant purchases, so please don't respond by telling me that you own your clothing. Thus, I buy my house but rent my car.

4) I can easily afford to buy. However, these lease deals were just too good.

5) I also take great care of my car, drive it under 15k miles per year and am not into modifications.

However, may people who lease don't really understand how leases work. The same can be said of many people who don't lease, and are critical of leasing. My wife drives too manymiles and doesn't maintain her car very well. She should never lease.

Finally, people who say that you always have a car payment tend to forget that they also trade in their cars for new cars and new financing. If you're interested in buying a car and keeping it until it dies, you should be looking at 2-3 year old cars that have taken their biggest depreciation hit. Better yet, you should be taking a look at reliable cars that are pretty much fully depreciated like 10-year-old Camrys, and then drive them into the ground.

For me the RX-8 is fun. When I'm tired of the fun it provides, I'll get something else without having to worry about what the car is worth in three years.

MTLbroker

Leasing is the new method of ownership. It makes a lot of sense financially and otherwise. Some of us get a tax break on the lease (good). Lease rates are usually just a tiny bit higher than finance rates (bad) but that is because leases incorporate a special insurance to protect the lease end values (good). Leasing also establishes your trade in value for 2,3,4,5 yrs into the future (good - especially for us risk-management types - kinda like hedging). Mileage allowance (bad).

Whether you put cash down or not is irrelevant. You only pay for depreciation of your lease term. The lessor will take the risk on the future value of the car (that you did not pay for). So, let's say 1 year into the lease, you wreck your car. If you did not put any cash down, your only liability is the depreciation up to the accident. Your insurance settles with the lessor and you move on to a another car. If you accident your car a year later and have it repaired, your car will suffer abnormal depreciation. Whether you bought the car and financed or leased it, you are still stuck with the balance of payments but the difference is that if you pay off your loan, you will own an accidented and repaired car. If you leased the vehicle, you give it back to the lessor at the predetermined lease end value (very high at the moment, I think it's something like 42% after 48 mo.). The lessor is on the hook for the extra depreciation - not you. So you see, leasing just opens up choices for you.

If you loved the car during the leased term and you put in some heavy modifications to your ride, then you simply buy it back for the lease end value. Your car new is 100%. The lease end value is 42%. Your depreciation over 4 yrs is 14% per year. And you never paid the 42% depreciation - just the financing on that amount. So here you buy it back for the 42%. If you had financed it you would pay 100% of the car plus financing over 4 yrs so your payments would have been much higher and you take the risk on whether or not the car is worth 42% of msrp after 4 yrs.

If you hated your car, or a new model comes out with a gazillion hp and 68 mpg, involved in an few accidents and had the car repaired. You don't want to keep the car. The lessor takes the car back with no further obligation to you.

Just make sure you get a closed-end lease from the manufacturer. Also ask yourself if you will be putting abnormally high mileage on the car. In general, if there are factory sponsored lease ads, it usually is a good deal. Long post. Hope it helps.

heh8me

I read cars.com article that rx8cited mentioned, BUYING VS LEASING.

Good article, except for one thing. It mentions that one of the benefits of owning a car is building equity. Why would you want to build equity in something that is going to depreciate? Would you buy a stock if you knew it was going to depreciate gradually year after year until it was worth virtually nothing? Cars are not investments.

rumatt

So let me get this straight... it's OK for you to buy new because you're on the left side of this table.

but someone can be on the left side of THIS table and achieve almost $4K BELOW invoice price yet you manage to conclude that they're pissing money away?

Brilliant argument.

MTLbroker

Whatever deal you strike with the dealer can be applied to the lease. In fact if you can get a car 4k below cost and the lease end value is based on msrp, your payments will be like peanuts.

heh8me

That's why I leased the car. The combination of a low purchase price and a high residual made me an offer I couldn't refuse.

MTLbroker

There was another thread here where the guy in a fairly new rx8's rear wheels locked up and he spun wrecking the car. He better hope that the insurance decides to scrap it.
Now if he bought the thing, he tries to sell it after the repairs, he would have to disclose that the car was accidented - maybe getting a much lower price in the process. In essence he is on the hook for the resale value.
If he had leased the thing, he would just give it back to the lessor and that's the end of that. See my point?
Anyways, I saw in the paper today that Mazda has a special running on both lease and finance.

xxMax Powerxx

Here is why you should lease...

In 3 to 4 years there will be a supercharged and Mazdaspeed version of the RX 8. Leassors will easily slide into one of those with no penalty!

gt1

I hate quoting myself but I didn't see anyone answer this....
Anyone actually have #s to show if this is worthwile???

Benthic

OK, to me it comes down to the cost of driving a car and what you can afford. To figure out which is best for you, first decide how long you anticipate keeping the car. Then look at the total cost of leasing over that period (including tax breaks and extra mileage charges), and the total cost of buying (payments less trade-in value and pay-off, if any) at the end of that period. I purchased my car for an estimated 2 years, even though a lease would have cost less per month (I got a 24-month loan at 0% financing through Mazda). RX8s have a high resale value, which helps the case for buying. The argument that a lease is a good idea if you don't drive very much has some false logic...you are paying a lot to lease a new car that you don't drive very much! Whether leasing or buying, you are still paying for the depreciation of the car, so that's not a valid argument. You're getting something (a working, nice-looking, high-performance car) for the depreciation. If you do plan on keeping a car for more than 5 years, buying is almost always cheaper.

fredw1

I was looking through these "old" threads, and agree that you need to look at the big picture before you decide which is right for you. Example:
2004 manual GT with options. MSRP $32,400. Assume one can obtain S-plan price or invoice of $29197 on the '04. Lease incentive is $3500, purchase incentive is $1500. I have compared a 4-year lease with a purchase at the end versus a five-year loan. You may argue that this is not totally fair, but both result in similar monthly payments.

Leasing w/ purchase at end:
Rebate $ 3,500.00
Cap Cost $ 26,070.00
Residual $ 13,919.00
Money Factor 0.00177
Lease Fee Depr $ 253.15
Lease Fee Finance $ 70.78
Lease Fee Tax $ 27.91 (monthly rather than upfront for a purchase)
Total Monthly $ 351.84
Total of Payments $ 16,888.32 ($351.84 x 48)
Total Cost* $ 31,782
* includes purchase at residual price plus 7% tax.

Buying:
Negotiated Price $ 29,570.00
Tax $ 2,069.90
Adjusted $ 31,639.90
Rebate $ 1,500.00
Adjusted $ 30,139.90
Down Payment $ 11,000.00
Amt Financed $ 19,139.90
Interest 5%
Term 60
Monthly Payment $ 361.19
Total of Payments $ 21,671.61
Total Cost $ 32,671.61

In the end, the lease-buy option costs slightly less, and you can buy the car and own it at the end of 4 years rather than five. This assumes you invest the $11,000 that would have been the down payment for the purchase, so that you have $13,919 (or something close to it at the end of the lease). The $2000 difference in the purchase price (cap cost) is what makes the lease-buy option one to consider. Furthermore, if the car is worth less than the residual at the end, the overall cost to own the car would be less.

My point is that there is no one right answer for everyone. I hope I have calculated everything correctly and not missed anything, but I'm sure if I'm wrong, I'll find out soon enough.

rx8wannahave

What a USEFUL thread this was...THANKS all of your for your input and links to the articles! :D

grapes

gt1----has the answer-How about leasing it, taking the big incentive and turning around to immediately buyout the lease? Has anyone done the math on this, including lease acquisition fee, re-finance at a higher rate (Capital One is about 5.x% re-finance compared to 3.8x% as a straight purchase loan) etc?
This may be as possible option too?
That's what i did Invoice -$5000 incentives=$19,600+ change plus tax put down $3000, got first MAC bill saw payoff was $17,314 cut acheck DONE DEAL

grapes

I know paying off a lease is not possible for everyone, but the 24 month Sign & Drive promo they had was a lease with balloon payment. I actually paid $19,600 not including tax tille + $495 MAC fees. And now i OWN it. Just got a 7 year Mazda Total care warranty for $1249 since i plan on keeping it.

jsh1120

Faced the issue of buy versus lease when I purchased my RX-8 last month. I had a significant down payment, $17,500 which I could apply to purchase or put in the bank and utilize the lease incentives being offered. I decided ultimately to purchase the car but running the numbers indicated that the two options were very close given the lease incentives Mazda offered.

What I conclude from this experience is as follows. If, as someone else mentioned, you're looking at acquiring a car by looking at the amount of monthly payments, get a cheap used car and save your money. You're just the pigeon that leasing plans use for their bread and butter.

If you can buy the car outright or make a very large down payment, leasing MAY make sense. This assumes that (a) you have a virtually guaranteed investment in which to put the money you would otherwise "invest" in a car; (b) there is no penalty for buying out the lease before it runs its course; (c) you're willing to pay a significant penalty for driving the car more than the lease allows; and (d) the dealer/manufacturer is willing to provide BIG incentives to put you in a lease rather than a purchase. (This is done in part because manufacturers have found that several years down the road they are in a strong position to lease/sell you another car.)

As others have noted, there is no clear right answer to the question of whether to lease or buy. However, if you're leasing because you can't afford to buy, be prepared to pay extra for the privilege. In some cases that penalty amounts to a chunk of change.

char

what about the higher insurance cost for leased vehicles?

fredw1

My agent tells me there is no difference in insurance costs. I'm not sure if this is true just for the policy I have (and the carrier) or the state.

KaPGuN

As far as I know, the only difference with leasing in regard to insurance is that you are required to have full coverage, whereas when you buy, you can have liability only if you wish [but not if you are financing it, in that case you must also have full coverage].

Basically, if someone else is still holding the title, they want to make sure the car is covered if its wrecked or stolen.